No time to lose : As US sanctions on Iran loom, India must ready a plan that suits its needs
India needs an Iran plan at the earliest, else it might find itself in a very tricky situation in November when the Trump Administration intends to implement full-blown sanctions on Tehran.
The problem for New Delhi is complicated by Washington’s ambiguity on what exactly does it expect from a partner country like India.
This is important for India because annually Iran is its third-largest supplier of crude oil. While the gap between Iran and the first two-—Iraq and Saudi Arabia—is significant, there are advantages that Iranian crude brings to the table that India simply cannot overlook.
In 2017-18, India imported about 22 million tonnes (mt) of crude from Iran. This is suitable to some of the Indian refineries, particularly the Mangalore Refinery and Petrochemicals Ltd. So, a sudden closing of the tap will have big ramifications. Clearly, India has to put in place a plan, but how?
The US sent a high-level official team to India recently to explain the details of its sanctions’ plan. The government was informed that sanctions will come into effect in two stages— first, in August and second, in November. It’s the second leg when the petroleum sector will come under sanctions. Now, a waiver is possible, but the specifics are unclear.
All that the US team could convey behind closed doors is India must show ‘significant reduction’ in its oil imports from Iran. But what does ‘significant’ constitute? This isn’t clear. It may well be purposeful ambiguity on the part of White House to see how Iran’s key importers respond.
India must not get drawn into this game of stare and dare. This isn’t the first time that the US has imposed sanctions on Iran. But the Obama Administration conveyed a clear sense on what quantum of reduction will keep the ball at play on both ends.
Settling Our Trade ::
While the architecture of the sanctions regime is unlikely to be very dissimilar, President Donald Trump’s political approach is going to be unpredictable and aggressive. So, for starters, India should begin by addressing this at a political level to come up with a mutually acceptable number.
New Delhi must not cave in, but will have to think on these lines because of its own domestic reality. The Indian financial sector has already started to take measures to shut out its exposure to Iran and safeguard transactions. In fact, India has allowed Iran’s Bank Pasargad to open a branch here with the idea to limit transactions by Indian banks this time. During the last round of sanctions, UCO Bank was used for rupee trade with Iran.
Within the oil sector itself, Indian private entities are quite clear that they will not trade with Iran under US sanctions. So, the larger economic environment does not support exposure to Iran. Yet, India can’t just do away with Iranian crude and also, politically, cannot easily yield space to the US in the backdrop of historically strong Indo-Iranian relations.
New Delhi sent a team of senior officials to the European Union to find a way out through alternate trading arrangements in euro. It appears that EU hasn’t drawn up a concrete plan yet, despite being hugely critical of the Trump White House. The subtext from these conversations was that European powers, for all their criticism of Trump’s moves, don’t want to provoke him.
Clear Political Goal ::
So it’s clear that India will have to make its own plans, also because it cannot completely align itself with Russia and China on this issue. At the same time, India must impose a high strategic cost to its political positioning on Iran. It has successfully done so in the past with the Bush and Obama Administrations.
The approach with Trump cannot be the same and must operate on two levels. First, the economic side, which must be guided by a clear political objective to obtain a waiver from the US to do business with Iran. In order to be in a position to make this argument by November, New Delhi will need to signal a willingness to reduce oil trade with Tehran.
India has already imported 50% of its firm commitment of crude from Iran for this year. Which is why Iran ranked second in the first quarter of 2018. The government may, thus, have the latitude to reduce imports without any immediate price shock to the consumer. This offer ought to be accompanied by a demand to ensure supply of similar quality crude from, say, Saudi Arabia or Iraq.
Just to put matters in perspective, roughly a little over 97 million barrels of crude is globally produced every day. Of this, around 60% is traded daily.
Remove Iranian crude and the trading number comes down by about 2.3 million barrels a day. The Trump Administration will have to figure out a way to compensate this loss to prevent price escalation.
This leads us to the second level, which must cast the overall political approach. While India should signal willingness to reduce oil trade with Iran, it must not allow Washington the comfort to think that it will go with the US all the way.
India’s early bird gesture must carry stiff conditions—from regulating global prices to cornering larger strategic gains elsewhere, because any concession on Iran has a direct bearing on India’s regional strategic environment, particularly Afghanistan and Pakistan.
In short, there’s no time to lose. It’s important for India not to be diffident or defensive, but proactive in setting the terms with the US on Iran instead of playing the guessing game like most of Europe.